Various initiatives to excite Petronas Dagangan in FY20

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Petronas Dagangan’s 3Q revenue decreased by a marginal 0.2 per cent y-o-y to RM7.8 billion, due to lower retail and commercial average selling prices, which fell by six and 10 per cent respectively.

KUCHING: Analysts laud Petronas Dagangan Bhd (Petronas Dagangan) for its many initiatives into the year ahead which will strengthen the group’s market position.

AllianceDBS Research Sdn Bhd (AllianceDBS Research) noted that Petronas Dagangan has engaged in various initiatives improve its non-fuel contribution from 10 to 30 per cent of net income in the next two to three years.

“We estimate Petronas Dagangan’s capital expenditure (capex) of RM380 million per annum for FY19-20F will be for 10 to 15 new station openings per annum; the refurbishment and modernisation of stations and Mesra outlets and roll-out of information technology (IT) initiatives including the SETEL application (app) launched in late 2018 which is an e-wallet to purchase petrol exclusively from Petronas stations,” it said in a review of the company’s results.

One key re-rating catalyst for Petronas Dagangan will be the full-commissioning of the Refinery and Petrochemical Integrated Development (RAPID) in Pengerang, Johor.

“As the sole domestic product distributor for Petronas, we expect PETD to obtain additional product offerings from the commercial operations of RAPID.

“This could expand its market share, particularly in the commercial markets where the availability of additional product offerings could help PETD to increase its jet fuel sales.

“The RAPID facility is expected to reach commercial operations by the first half of 2020. As such, any meaningful financial contribution from RAPID to PETD may only come in in 2HFY20. With sketchy financial details at this juncture, we have yet to input in any adjustments to our earnings model.”

Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that Petronas Dagangan’s third quarter (3Q) revenue decreased by a marginal 0.2 per cent y-o-y to RM7.8 billion, due to lower retail and commercial
average selling prices, which fell by six and 10 per cent respectively.

Nevertheless, the higher number of retail stations and better productivity, coupled with increased diesel and Jet A-1 demand helped drive sales volume higher by six to eight per cent y-o-y.  Profit before tax was weaker by 19 per cent y-o-y, impacted mainly by higher product costs, depreciation, advertising and promotion and SETEL system maintenance costs, which offset by higher Mesra income.

Sequentially, Petronas Dagangan’s revenue grew by three per cent quarter on quarter (q-o-q) primarily driven by stronger sales volume, partly offset by marginally weaker average selling prices.

Profit before tax jumped 34 per cent quarter on quarter (q-o-q), partly due to the sharp drop in MOPS prices in 2Q19, as well as better retail and commercial volumes.

“While Petronas Dagangan’s strategy to improve station productivity has borne fruit, we believe industry sales volume will likely remain lacklustre.

“In addition, more clarity is needed for its strategy to build up the non-fuel income to 30 per cent of total retail profit. We reiterate our hold rating with a target price at RM23.95.”

On the other hand, AllianceDBS Research believed that the government’s implementation of a targeted RON95 fuel subsidy early next year could exacerbate Petronas Dagangan’s earnings uncertainties. To recap, the targeted RON95 fuel subsidy was announced by the government during Budget 2019.

“The owners of cars and motorcycles with engine capacities of below 1,500cc and 125ccm respectively will receive subsidies for RON95 petrol at 30 sen per litre,” it said.  The petrol subsidy for car owners will be limited to 100 litres monthly, while motorcycle owners will be limited to 40 litres monthly. We believe that this fuel subsidy will effectively remove the current price cap of RON95 at RM2.08/litre, which could impact the overall retail volume of the industry.”